Q35770912
AID: 1825 | 27/03/2019
[Delimiter]
[General guidance]
[Section: Concepts and reason]
Accounting: Accounting is a process of recording the transactions, classifying them in a
specific manner, and then it is the process of summarizing and analyzing to interpret the
results. It is a process of preserving the accounts.
Balance sheet: Balance sheet refers to a statement of assets, liabilities, and owner’s equity
as on a particular date of the fiscal year of the business enterprise. It also depicts the
financial status of a business enterprise in a nutshell.
[Section: Fundamentals]
Assets: Asset is the resource of a company to generate income. Asset is generally
classified into fixed assets, current assets, tangible assets, and intangible assets. Fixed
assets are the assets that are used to generate income over a long period. Current assets
are the assets that are realized within the current financial year. Tangible assets are the
assets that can be felt and touched. Intangible assets are the assets that cannot be felt or
touched.
Liabilities: Liabilities are the company’s owing to outsiders. It is the obligation raised to a
company to settle its payments and dues. Liability is generally classified into long-term
liability and short-term liability. Long-term liability is the liability to be settled in the
succeeding financial years. Short-term liability or current liability is the liability to be
settled in the current financial year.
Accounts payable: Accounts payable is the amount to be paid by a person or company
who has purchased goods or received any services during the future period. It is the
liability of the company and thus shown under liabilities in the balance sheet.
Accounts receivable: Accounts receivable is the amount to be received by a company that
has sold goods or rendered any services during the period. It is the asset of the company
and thus shown under assets in the balance sheet.
Inventory: Inventory refers to the goods purchased by the company from manufacturers
and are resold to the customers. Transportation charges at the time of purchase, storage,
insurance cost, and many more are included in the merchandise inventory account.
Inventory is one of the important current assets of the company.
[Delimiter]
[Starting Hint]
Based on the information given in the question, calculate the working capital of 2017.
[Delimiter]
[Step 1]
Calculate the working capital of 2017:
Working capital = Current assets
Current liabilities
=$339
$156
$183
Therefore, the working capital of 2017 is $183.
[Explanation]
It is mentioned to determine the difference between the working capital of 2017 and
2016. Thus, it is calculated by deducting the working capital of 2016 from working
capital of 2017. The working capital of 2017 is calculated by deducting the current
liabilities from the current assets. Therefore, the working capital of 2017 is $183.
[Hint for next step]
Based on the information given in the question, determine the difference between the
working capital of 2017 and 2016.
[Delimiter]
[Step 2]
Determine the difference between the working capital of 2017 and 2016:
Working capital difference
Working capital of 2017
=
for 2017 and 2016
Working capital of 2016
=$183
$56
$127
Therefore, the working capital in 2017 is $127 million more than the working capital in
2016.
Working notes:
Calculate the working capital of 2016:
Working capital = Current assets
Current liabilities
=$280
$224
$56
